Agenda of Corporate and Strategic Committee

Meeting of the Corporate and Strategic Committee

Date: Wednesday 19 May 2021

Time: 10.30am

Venue:

Council Chamber

Hawke's Bay Regional Council

159 Dalton Street

NAPIER

Agenda

Item Title Page

1. Welcome/Notices/Apologies

2. Conflict of Interest Declarations

3. Confirmation of Minutes of the Corporate and Strategic Committee held on 3 March 2021

4. Follow-ups from Previous Corporate and Strategic Committee Meetings 3

5. Call for Minor Items not on the Agenda 7

Decision Items

6. Report & Recommendations from the 5 May 2021 Finance Audit and Risk Sub-committee Meeting 7

7. Appointment of an Independent Member to the Finance, Audit and Risk Sub-committee 35

8. HBRC Investment Strategy and Treasury Policy 39

Information or Performance Monitoring

9. 2020-21 Quarter 3 (1 January - 31 March 2021) Financial Report 43

10. Organisational Performance Report for period 1 January to 31 March 2021 57

11. LTP IT Work Programme Delivery 59

12. HBRIC Quarterly Update 65

13. Hawke's Bay Tourism Six-monthly Update 77

14. Discussion of Minor Matters Not on the Agenda 97

Decision Items (Public Excluded)

15. Confirmation of Public Excluded Minutes 99

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: Report & Recommendations from the 5 May 2021 Finance Audit and Risk Sub-committee Meeting

Reason for Report

1. The following matters were considered by the Finance Audit and Risk Sub-committee (FARS) meeting on 5 May 2021 and are now presented for the Committee’s consideration alongside any additional commentary the Sub-committee Chair wishes to offer.

2. The purpose of the Finance, Audit and Risk Sub-committee, in accordance with its Terms of Reference, is to report to the Corporate and Strategic Committee to fulfil its responsibilities for:

2.1. The provision of appropriate controls to safeguard the Council’s financial and non-financial assets, the integrity of internal and external reporting and accountability arrangements

2.2. The review of Council’s revenue and expenditure policies and the effectiveness of those policies

2.3. The independence and adequacy of internal and external audit functions

2.4. The robustness of risk management systems, processes and practices

2.5. Compliance with applicable laws, regulations, standards and best practice guidelines

2.6. Monitor the performance of Council’s investment portfolio.

Agenda items

3. The Independent Member Resignation item formally received the resignation of Rebekah Dinwoodie. A separate agenda item has been prepared to provide the means for the Corporate and Strategic Committee (C&S) to act on the Sub-committee’s recommendation that:

3.1. the C&S determines and recommends to Hawke’s Bay Regional Council an appropriate recruitment and appointment process to replace the Independent Member of the Finance, Audit and Risk Sub-committee.

4. The Risk Maturity Update item updated the Sub-committee on the implementation of Council’s maturing risk management system, including that Risk Appetite Workshops with the Executive Leadership Team (ELT) and councillors have taken place and a draft Risk Appetite Statement will be presented to the August FARS meeting for adoption. The Sub-committee resolved:

4.1. Confirms that the management actions undertaken and planned adequately respond to the Risk Management Maturity Roadmap as endorsed by Hawke’s Bay Regional Council on 24 June 2020

4.2. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that adequate evidence has been provided of progress to implement the maturing risk management system

5. The Internal Audit Work Programme Update item updated the Sub-committee on the work programme including the dashboard of corrective actions taken. In response to a query made at the Sub-committee meeting in relation to Health & Safety and the induction of Contractors, staff advise that although there are appropriate processes in place via SiteWise and the HBRC’s 2017 Contractors’ H&S Guidelines and Workbook, these are currently under review in order to address inadequacies identified by the Audit, and staff are also working to create a dashboard to enhance the tracking and reporting of how contractors are meeting their H&S obligations. The Sub-committee resolved:

5.1. Confirms that management actions undertaken or planned for the future adequately respond to the findings and recommendations of the internal audits

5.2. Reports that the Committee can be assured that the H&S of contractors whilst working for the HBRC onsite or off have the appropriate processes in place via SiteWise or the HBRC’s 2017 Contractors’ H&S Guidelines and Workbook (currently under review)

5.3. Confirms that the dashboard reports provide adequate information on the progress of corrective actions and the progress of the approved Annual Internal Audit programme

5.4. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Internal Audit Work Programme Update provides adequate evidence of the adequacy of Council’s internal audit functions and management actions undertaken or planned to respond to internal audit review findings and recommendations.

6. The Internal Assurance Framework item provided the draft Internal Assurance Framework and the Internal Assurance Implementation Plan (attached) for the Sub-committee’s endorsement and recommendation to the C&S to further recommend to Council for adoption.

7. The intent of the Internal Assurance Framework is to take an organisational and proactive risk-based approach to assurance that covers the breadth and depth of Council. This should provide greater confidence to governors and to management that the organisation is well run with the ‘right’ activities being delivered in the ‘right’ way.

8. It is also intended that the Framework will provide a catalyst to promote a culture of transparency across the organisation. Key points in the draft Internal Assurance Framework include:

8.1. Adoption of internal audit principles as defined by the International Institute of Internal Auditors.

8.2. Adoption of the three lines of defence model which is an assurance model that has been endorsed by the Office of the Auditor General. The Office of the Auditor General notes that this model allows for scalability of an assurance programme based on the: criticality of the activity being reviewed, type of assurance being undertaken, and level within the organisation requiring assurance.

8.3. Assurance review classification based on the type of review being undertaken and the recipient of the assurance. The three types of review classifications, classification review examples, and the intended recipients are:

8.3.1. Internal assurance, e.g. S17a – Council Committee and management that is responsible for the activity being reviewed

8.3.2. Enterprise Internal audit, e.g. management system audits – the FARS

8.3.3. Operational internal audits, e.g. review of ‘Codes of Practice’ (COP) – Council’s Management and ELT.

8.4. The Framework will be measured by its ability to drive positive change and improvement throughout Council.

9. The Sub-committee resolved its endorsement of the Framework and support for the Implementation Plan as well as recommending that C&S further recommend both to Council for adoption, noting that the framework itself does not deliver outcomes.

10. The Data Analytics Internal Audit Report item provided the report on the fourth consecutive annual Data Analytics Audit of payables, payroll and transactional data for the financial year conducted by Crowe. No significant issues were raised by the Audit and it is proposed that the Data Analytics internal audit be carried out in the first year of TechOne being implemented and then extended to a 2-yearly cycle.

10.1. That the Finance, Audit and Risk Sub-committee receives and notes the “Data Analytics Internal Audit Report”.

11. The Quarterly Treasury Report for 1 January - 31 March 2021 item provided an update on the performance of Council’s investment portfolio for the third quarter of the 2020-21 financial year, highlighting an expectation that returns will continue to equalise over the next quarter and that full year performance will be around $8.0m ahead of budget. The following resolution was then passed.

11.1. That the Finance, Audit and Risk Sub-committee receives and notes the “Quarterly Treasury Report for 1 January - 31 March 2021” and confirms that the performance of Council’s investment portfolio has been reported to the Sub-committee’s satisfaction.

Decision Making Process

12. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as all items were specifically considered at the Sub-committee level this item is for information only and the LGA decision making provisions do not apply.

Recommendations

1. That the Corporate and Strategic Committee receives and notes the report and recommendations from the 5 May 2021 Finance, Audit and Risk Sub-committee, including the FARS resolutions:

Risk Maturity Update

1.1. Confirms that the management actions undertaken and planned adequately respond to the Risk Management Maturity Roadmap as endorsed by Hawke’s Bay Regional Council on 24 June 2020

1.2. Reports the Sub-committee’s satisfaction that adequate evidence has been provided of progress to implement the maturing risk management system.

Internal Audit Work Programme Update

1.3. Confirms that management actions undertaken or planned for the future adequately respond to the findings and recommendations of the internal audits.

1.4. Confirms that the dashboard reports provide adequate information on the progress of corrective actions and the progress of the approved Annual Internal Audit programme.

1.5. Reports the Sub-committee’s satisfaction that the Internal Audit Work Programme Update provides adequate evidence of the adequacy of Council’s internal audit functions and management actions undertaken or planned to respond to internal audit review findings and recommendations.

Data Analytics Internal Audit Report

1.6. Receives and notes the “Data Analytics Internal Audit Report”.

Quarterly Treasury Report for 1 October - 31 December 2020

1.7. Receives and notes the “Quarterly Treasury Report for 1 October - 31 December 2020” and confirms that the performance of Council’s investment portfolio has been reported to the Sub-committee’s satisfaction.

2. The Finance, Audit and Risk Sub-committee recommends that the Corporate and Strategic Committee:

2.1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that the Committee can exercise its discretion and make decisions on this issue without conferring directly with the community or persons likely to have an interest in the decision.

Independent Member Resignation

2.2. Determines and recommends to Hawke’s Bay Regional Council an appropriate recruitment and appointment process to replace the Independent Member of the Finance, Audit and Risk Sub-committee.

Internal Assurance Framework

2.3. Approves the draft Internal Assurance Framework and the Internal Assurance Implementation Plan as proposed and recommends the adoption of both to the Hawke’s Bay Regional Council.

Authored by:

Olivia Giraud-Burrell

Business Analyst

Leeanne Hooper

Team Leader Governance

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩	Draft Internal Assurance Framework Feb21
2 ⇩	Internal Assurance Framework Implementation Plan

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: Appointment of an Independent Member to the Finance, Audit and Risk Sub-committee

Reason for Report

1. This item enables the initiation of a process to appoint an independent member of the Finance, Audit and Risk Sub-committee (FA&R) to replace Rebekah Dinwoodie, who has tendered her resignation from the role.

Background

2. The Terms of Reference for the FARS, adopted by Council on 6 November 2019, state that membership of the sub-committee is up to four members of Council and an external appointee.

3. At the time (November 2019) Council adopted its governance structure, including committees’ Terms of Reference and membership, there were discussions around:

3.1. The necessity (or otherwise) for an external, independent member of the FARS

3.2. Whether the FARS should be a ‘standing committee of the whole’ with delegations to make recommendations directly to Council rather than through the Corporate & Strategic Committee as a sub-committee of that body.

Options Assessment

4. Council could amend the FARS Terms of Reference to remove the membership requirement for an external (independent) appointee on the sub-committee. However, as this would be contrary to best practice guidelines, staff do not recommend this option.

5. The Committee can agree the process to replace the Independent Appointee on the FARS and recommend to Council that the process be initiated.

6. If it is of a mind to, the Committee might base the process to appoint a new independent member on the one previously undertaken, being:

6.1. Requests that the Chief Executive seeks Expressions of Interest from suitably qualified applicants for the role of independent member of the Finance, Audit and Risk Sub-committee

6.2. Determines the process for the appointment of the independent member of the sub-committee; being:

6.2.1. Candidates short-listed for interview by the Sub-committee

6.2.2. Sub-committee interviews shortlisted candidates

6.2.3. Sub-committee recommends appointment of preferred candidate to the Corporate and Strategic Committee.

Financial and Resource Implications

7. The remuneration, including expenses, for the independent member has been included in Council’s governance budgets and is currently set at $8,000 per annum.

Decision Making Process

8. Council is required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

8.1. The decision does not significantly alter the service provision or affect a strategic asset.

8.2. The use of the special consultative procedure is not prescribed by legislation.

8.3. The decision does not fall within the definition of Council’s policy on significance.

8.4. The persons affected by this decision are councillor members of the Finance, Audit and Risk Sub-committee and potential candidates for independent member of that body.

8.5. The decision is not inconsistent with an existing policy or plan.

8.6. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Timeline

9. Proposed timeline for appointment of Independent Member to Finance, Audit and Risk Sub-Committee.

Week
24 - 28 May

Week
14 - 18 June

Week
21 - 25 June

Late June

Thursday 29 July

4 August

SEEK advert

Shortlisting

Interviewing

Reference Checking

FARS Final Agenda

FARS Meeting

HBRC to advertise

Approx 2 weeks

Chair of FARS

GM Corporate Services

Chair of FARS

GM Corporate Services

People & Capability

Recommendation/s for final agenda

Rec to C&S

Recommendations

1. That the Corporate and Strategic Committee receives and considers the “Appointment of an Independent Member to the Finance, Audit and Risk Sub-committee” staff report.

2. The Corporate and Strategic Committee recommends that Hawke’s Bay Regional Council:

2.1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion and make decisions on this issue without conferring directly with the community or persons likely to have an interest in the decision.

2.2. Initiates the process following for the recruitment and appointment of an Independent member of the Finance, Audit and Risk Sub-committee

2.2.1. Chief Executive to seek expressions of interest from suitably qualified candidates

2.2.2. FARS councillor members to assess Expressions of Interest received and determine a shortlist of candidates for interview

2.2.3. FARS Chair and GM Corporate Services undertake interviews of the shortlisted candidates, after which the FARS recommends the appointment of the preferred candidate to Council.

Authored by:

Leone Andrews

EA to Group Manager – Corporate Services

Leeanne Hooper

Team Leader Governance

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: HBRC Investment Strategy and Treasury Policy

Reason for Report

1. The Investment Strategy outlines Council’s approach to managing its investment assets. It reflects the principles agreed upon with Councillors as part of the development of the financial strategy for the 2021-31 Long Term Plan (LTP). It builds on this work by providing detail regarding the operational elements required to implement the Investment Strategy. The draft Investment Strategy for the 2021-31 LTP is attached for feedback.

2. The Treasury Policy further operationalises the financial strategy of the LTP and Annual Plan. It sets the limits and parameters to manage all external borrowing, investments and incidental financial arrangements (e.g. use of interest rate risk management instruments). It ensures requirements of the Local Government Act 2002 are met and incorporates the Liability Management Policy and Investment Policy. The amended (marked up) Treasury Policy is attached for feedback.

Officers’ Recommendation(s)

3. Officers recommend the Committee considers both documents and provides feedback on whether the documents adequately and appropriately deliver operationalising the key principals agreed through the development of the 2021-31 LTP in order to recommend to Council for adoption.

Background /Discussion

4. The Financial Strategy outlines the Council’s overall approach to managing its finances. The objective of the Financial Strategy is to:

4.1. manage the collection, investment and expenditure of rate-sourced, grant-sourced and user-pays-sourced funds

4.2. set guidelines and limits so that the community has assurance that HBRC’s revenue and expenditure remains within known and agreed limits and provides for the investment in infrastructure and the achievement of goals that the community is aware of and has agreed to.

5. Officers have developed an Investment Strategy and updated the Treasury Policy to support delivery of and reflect key changes made to the 2021-31 Financial Strategy, including:

5.1. Increase in debt limit from Net Debt / Total Revenue 150% to 175% in line with LGFA policy covenants

5.2. Increase in Rates as a percentage of Revenue, from 50% to 60% to reduce reliance on investment income

5.3. Build an investment equalisation reserve of $10m by the end of the 2021-31 LTP

5.4. Borrowing to fund operational costs to balance the rating impact in order to fund an accelerated work programme

5.5. HBRIC mandated to grow its investment portfolio.

Diagram

Description automatically generated

Next Steps

6. Feedback received on the draft documents attached to this report will be incorporated and presented to Council for formal adoption on 30 June 2021 with the Investment Strategy becoming effective from 1 July 2021 and the Treasury Policy from 30 June 2021.

7. Review of the Statement of Investment Policy and Objectives will follow the finalisation of the Investment Strategy and Treasury Policy.

8. The HBRIC Statement of Intent was presented in draft to the Corporate and Strategic Committee on 3 March and the Regional Council on 24 March 2021. Council feedback has been given to the HBRIC board and the revised document will be presented back to Council for adoption on 30 June 2021.

Decision Making Process

9. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

9.1. The decision does not significantly alter the service provision or affect a strategic asset, nor is it inconsistent with an existing policy or plan.

9.2. The use of the special consultative procedure is not prescribed by legislation.

9.3. The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

9.4. Given the nature and significance of the issue to be considered and decided, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

1. That the Corporate and Strategic Committee receives and considers the “HBRC Investment Strategy and Treasury Policy” staff report.

2. The Corporate and Strategic Committee recommends that Hawke’s Bay Regional Council:

2.1. Agrees that the decision to be made is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion and make the decisions on this issue without conferring directly with the community or persons likely to have an interest in the decision.

2.2. Adopts the HBRC Investment Strategy and Treasury Policy as proposed.

2.3. Adopts the HBRC Investment Strategy and Treasury Policy as amended to incorporate the amendments agreed by the Corporate and Strategic Committee, being:

2.3.1. …

2.3.2. …

Authored by:

Geoff Howes

Treasury & Funding Accountant

Bronda Smith

Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

1 ⇨	Draft Investment Strategy		Under Separate Cover
2 ⇨	Updated Draft Treasury Policy		Under Separate Cover

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: 2020-21 Quarter 3 (1 January - 31 March 2021) Financial Report

Reason for Report

1. This item provides the Committee with financial results for the 2020-21 financial year for the 9 months to 31 March 2021.

YTD Summary to 31 March 2021

2. Councils operating position has improved by $2.4m, with a YTD deficit of $2.7m compared to a forecast deficit of $5.1m based on the pro-rata budget.

3. Operating income is $500k favourable to budget and expenditure to date is almost $2m less than budget.

4. Capital expenditure overall is running at 68% of the pro-rata budget ($7m lower than planned) and capital income is 58% ($1.75m) exceeding budget due to receiving PGF funding for shovel-ready projects (Heretaunga Plains Flood Control Schemes, Upper Tukituki and Wairoa work). In addition, repayments received from the Sustainable Homes programme have exceeded budget (both early repayments and higher repayments from the increased uptake in the programme).

Summary – Full Year Forecast

5. A $3.6m improvement in the forecast year end operating position. The forecast year end operating position is an operating deficit of $3.2m compared to a budgeted deficit of $6.8m.

6. Full year operating income is expected to exceed the budget by 9% ($4.7m) due to favourable investment income expectations including dividends from HBRIC and the returns from Managed Funds.

7. Full year operating expenditure is expected to exceed the budget by 2% ($1.1m) due to $760k of fees charged by the Managed Fund providers as a result of the additional revenue received as noted above.

8. Full year capital expenditure is expected to be 17% ($5m) underspent with an additional $3.4m income expected from government funding for the shovel-ready projects across Asset Management and Integrated Catchment Management.

9. The combined capital and operating carry forward requests are expected to exceed $10m including $150k of shovel ready funding.

Background to the Financial Summary

10. Many of the variances in the financial report to 31 March are the result of:

10.1. no seasonal phasing of budgets.

10.2. timing of the work programme delivery.

11. The FY20-21 annual plan budget was revised in response to the Covid-19 Pandemic. It includes conservative forecasting for investment income in-particular the uncertainly around the economy and financial markets at the time of preparation and adoption.

12. The budgets presented include the carry forwards from FY19-20 approved by Council.

13. For reporting purposes, the annual budget is divided evenly across the year without phasing. Annual spend has considerable seasonality, particularly planting activity, which will occur towards the end of the Financial Year. Future year reporting, from the new finance system will be phased across the year accounting for seasonality.

14. New loan funding is generally drawn down at the end of the financial year when the actual required funding is known.

15. All revenue and expenditure accrued (carried forward) at the end of the FY19-20 financial year has been recognised in the FY20-21 actuals.

Operating Income and Expenditure to 31 March

Groups of Activities

16. Overall Expenditure is at 94% ($2.6m less) than pro-rata budget across all activities.

16.1. Asset Management and Integrated Catchment Management expenditure is less than budget by $1m and $2m respectively but both areas are subject to seasonal variations with significant additional expenditure occurring in the last quarter of the year.

16.2. Transport is 13% ($500k) over budget due to the increased costs associated with the operation of the bus service.

17. Income is 4% ($1m) favourable to budget at 31 March.

17.1. Emergency Management is $200k below budget. This is a reflection of budget phasing as partners are invoiced at year end when expenditure for the year is known and the income will be recognised.

17.2. Consents and Compliance income recovery is $200k less than budget due to more time spent on unrecoverable activities and enforcement actions. However, through prosecutions significant income has been awarded via court fines which has not yet been accounted for in these financial statements.

Regional and Other Income

18. Income from Managed Funds is 56% ($2.35m) ahead of budget reflecting returns exceeding the conservative, Covid19 adjusted plan.

19. HBRIC Dividends for FY20-21 were received in December.

20. Endowment Leasehold Rent is $1.9m below budget due to the timing of the leaseholder invoicing and the payments to ACC but will be adjusted at year end to reflect the revenue received.

21. Fair Value Movements due to Revaluations will be calculated at year end.

Capital Expenditure to 31 March

22. Overall Capital Expenditure is at 75% of the planned YTD position due to:

22.1. IT projects $1.4m variance due to delays in recruiting appropriately qualified resources to gather requirements and manage projects.

22.2. Asset management $1.6m variance due to delays in projects (Clive River dredging awaiting consents etc) and the timing of work as plant purchase and planting is carried out in the winter season. Asset Management income is ahead of budget by $1.2m through funds received for the shovel-ready projects.

22.3. Integrated Catchment Management expenditure is 10% ($600k) ahead of budget due to the continued success of the Sustainable Homes programme which is $2.6m ahead of its budget offsetting limited expenditure in the Ruataniwha Groundwater Modelling, 3D Aquifer Mapping (SkyTEM) and LiDAR mapping projects caused by delays and unavailability of resource.

22.4. Regional Income capital expenditure is behind budget by $2.3m. This includes the Regional Water Security Scheme which has been impacted by delays in contract agreements with PGF deferring the entire project timeline.

22.5. Property, Plant and Equipment purchasing is at 38% of budget ($2.5m less). $1.3m variance relates to the timing of the accommodation project. Building work is about to begin and the $2m allocated to this project is expected to be spent by the end of the calendar year, but will be somewhat dependant on the availability of architects and builders.

Balance Sheet

23. Non-Current Assets have increased by $7.5m overall since year end. This comprises increases in Infrastructure Assets and Intangible Assets as a result of the capital work programme, increases in Financial Assets due to the continued growth in the managed funds, offset by $2.4m reduction in the Investment Property value from the sales of leasehold properties.

24. Current Assets are consistent with the same period in FY19-20 with the increase in Trade Receivables being the result of invoicing to MBIE of $1.4m for PGF funds for work completed and forestry harvesting revenue from Pan Pac.

25. Fair value reserves have increased by $7m over the last quarter from unrealized gains in the managed funds.

26. Non-current Liabilities have increased following the further drawdown of $10m in March 2021 to meet cash flow requirements in addition to the original drawdown of $6.3m in July 20 for debt funded project work in FY19-20.

27. Current liabilities have increased in comparison to FY19-20 due to an increase in trade and other payables. This consists of the payroll accrual for the end of March and the underlying growth in trade payables which is the result of the significant increase in the work programme.

Other Information

28. Rates receivables are down by $800k compared to 31 March 2020 reflecting the overall improvement in rates payment through the early collection and increased use of direct debit.

29. Trade and Lease Receivables are up $1.7m compared to 31 March 2020 with longer collection periods. Analysis shows the increase is primarily due to the growth in invoices to central government for approved funding which can take months to be verified and processed.

30. Accounts Payable has increased compared to the same period prior year due to the growth in the work programme and the additional costs from the external contractors.

Reserves

31. Reserve movements are as expected based on the operating and capital income and expenditure to date.

Forecast to 30 June 2021

32. The full forecast year end position is a $3.6m improvement on budget, expecting an operating deficit of $3.2m compared to a budgeted deficit of $6.8m and a net funding requirement improving from a surplus of $129k to $2.2m.

33. The forecast Operating Expenditure across the group of activities is expected to be close to budget Transport is expecting to be 20% over budget due to cost increases in operating the bus service.

34. The forecast Operating Income across the group of activities is expected to be close to budget Transport is expecting to be 20% over budget with the additional funding from NZTA offsetting the reduced direct income from the public from the flat rate fees.

35. Under Regional Income. further gains are expected from the Managed Funds with the year end forecast indicating returns 62% ($3.5m).over the budget of $5.5m and HBRIC Dividends remaining at the higher than expected $4m, $1m over the full year budget.

36. The Capital forecast shows:

36.1. IT projects finishing $1m below budget in this year, but projects on track to utilise full budgets.

36.2. Asset Management finishing $500k below budget. This is a combination of $1m unspent through continued delays in the Clive river dredging project moving the work to 21/22 plus underspends on other scheme expenditure totaling $2.3m. This shortfall has been offset by the $2.825m in additional work expected to be completed through the shovel ready projects.

36.3. Integrated Catchment Management expects to complete the year $1.7m over budget due to the Sustainable Homes programme which is fully debt funded.

36.4. Regional Income includes Water Security and HBRC Forestry and forecasts $2.4m shortfall in expenditure. Water Security expects to be $3m under budget at year end while $600k has been spent in Forestry on new roading and bridges to support improved access and facilitate the harvest.

37. The 2020-21 annual plan included a forecast $7.5m debt requirement to cover the impact of Covid-19 on the budget (zero rates increase, reduced returns on managed funds and HBRIC dividends). The higher than expected returns from the managed funds and dividends indicate that this debt requirement will be reduced by $4.5m.

Carry Forwards for 2021-22

38. Several capital and operating projects will be requesting a carry forward of funding into the next financial year based on their forecast expenditure for the year:

38.1. ICM expect to request to carry forward $1.4m of their operating expenditure including $800k for the Erosion Control Scheme and $380k of third party funding for Biodiversity from Te Uru Rakau 1BT. Also, $1.8m of their capital expenditure including $650k for 3D Aquifer Mapping (SkyTEM), $400k for the Ruataniwha Groundwater Modelling and $370k for the drilling required as part of the Ruataniwha groundwater monitoring programme.

38.2. IT is expecting to request to carry forward $1m from the IT projects budget due to delays in recruiting staff to initiate, gather requirements and oversee projects and $400k from the Computer Equipment budget including $300k for aerial mapping. The regional aerial mapping project has incurred delays from HDC in progressing the procurement process. The tender should be issued before 30 June with the work now expected in 21-22.

38.3. Asset Management is expecting to carry forward $1m on the Clive River Dredging project with the amount dependent on the timing of consent and capability of the contractor to start work. Other Scheme Capital Expenditure is expected to be carried forward with a review before year end to assess the requirement based on the LTP. The shovel ready projects expect to carry forward $150k of IRG funding to spend in 21-22.

38.4. Corporate support expects to request a carry forward of $1.7m to continue the work on the Raffles Street, Station Street and Dalton Street buildings for completion within the calendar year.

38.5. The Water Security project expects to request a capital expenditure carry forward of $4.1m.

38.6. Strategic Planning expect to request an operating expenditure carry forward of $250k for continued work on the regional coastal plan, TANK and the OWB hearings.

Decision Making Process

39. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the “2020-21 Quarter 3 (1 January - 31 March 2021) Financial Report”.

Authored by:

Tim Chaplin

Senior Group Accountant

Bronda Smith

Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩	Q3 2020-21 Financial Statements
2 ⇩	Forecast Financials to 30 June 2021

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: Organisational Performance Report for period 1 January to 31 March 2021

Reason for Report

1. This item provides the organisational performance for the period 1 January – 31 March 2021.

Content of the Report

2. The attached Report contains four parts plus an Executive Summary with highlights and lowlights for the quarter.

2.1. Part 1: Significant Events or Programmes impacting this quarter. These tend to be cross-council so sit outside the groups of activities section.

2.2. Part 2: Business Improvement Measures focus on how well we are performing across a number of corporate-wide measures such as health and safety incidents and response to customer feedback.

2.3. Part 3: Level of Service Measures by Group of Activities with traffic light status and commentary by exception.

2.4. Part 4: Activity Reporting by Group of Activities with non-financial and financial (operating only) traffic light status and commentary.

3. This is the tenth Organisational Performance Report to be presented. As per last quarter the status and commentary reporting has been rolled up from 3-digit code to activity level. Status and commentary by 3-digit code is still available to Councillors via the dashboard.

4. Following feedback from Councillors at the last committee meeting we have included the targets for the Level of Service Measures that were adopted in the 2018-28 Long Term Plan.

5. As a reminder, staff complete their reporting in a software tool called Opal3 once actual financial results for the quarter are loaded on the 20^th of the month following the end of the quarter. Staff select the status (red, amber, green) of non-financial results, but it is fixed against agreed criteria for financial results. For example, red is set at >$30,000 or >10% over or under budget. Staff are then required to provide commentary on what they did in the quarter in terms of actual non-financial performance and to explain any variations to budgets.

6. It should also be noted that many of the variances shown as red in the activity financial reporting are the result of the current financial systems’ inability to phase budgets through the year. The current budget has been spread evenly across the 12 months which does not reflect the actual timing of work programme delivery. The new financial system due to be implemented from 1 July 2021 will address this.

7. Next quarter we plan to increase visibility over our Internal Activities with both non- financial and financial reporting.

Dashboard

8. We are continuously improving the new dashboard and improving the data reliability across all areas – we would appreciate any feedback you have. New this quarter are timeseries graphs for the Level of Service Measures to give context for the quarter result.

Decision Making Process

9. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the “Organisational Performance Report for period 1 January to 31 March 2021”.

Authored by:

Kelly Burkett

Business Analyst

Desiree Cull

Strategy and Governance Manager

Approved by:

Desiree Cull

Strategy and Governance Manager

Attachment/s

1 ⇨

Q3 January-March 2021 Organisational Performance Report

Under Separate Cover

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: LTP IT Work Programme Delivery

Reason for Report

1. This item highlights key initiatives in progress to improve Council’s digital systems as well providing an update on the planned programme for delivery, including $30m capital spend, funded within the 2021-31 Long Term Plan (LTP) draft budgets.

2. It provides the context for a presentation to be made to the Committee by Andrew Siddles, Chief Information Officer.

Background

3. One certainty in today’s business environment is that most organisations could not survive for very long without their digital systems. In the public sector, good digital systems are the ‘table stakes’ to meet the expectations of customers, partners, suppliers, staff and other stakeholders. Above these necessities, there are also opportunities for digital systems to enable different ways of doing our work and collaborating with our stakeholders.

4. Council has a diverse range of digital systems that enable the capture, analysis, storage and presentation of data. But there are key gaps in the application portfolio and obsolescence issues with many of our technology platforms. Expectations for integrated systems and reporting are also challenging within current application architectures and datasets.

5. In response to the huge demand for improvements to digital systems across many business units, Council has approved $30m capital spend, within the 2021-31 Long Term Plan (LTP) draft budgets for the implementation of new digital systems.

6. As part of the Corporate Plan, we’ve committed to develop an implementation plan for the IT capital work programme.

Implementation Plan for the IT Capital Work Programme

7. The IT implementation plan will deliver the capital work programme at a fast pace, while also ensuring that numerous new and upgraded systems are delivered as a cohesive and integrated digital platform.

8. Although $30m is a significant investment, it is still not enough to meet all of the requests that have been put forward by staff, customers and stakeholders. We have therefore needed to prioritise efforts and investments.

9. The prioritisation process was as follows:

9.1. Requests for business proposals (60 project requests were received)

9.2. Workshopped proposals to clarify the desired outcomes, estimated size, cost and risk profile

9.3. Reviewed data from previous and current digital system implementations to improve understanding of our capacity to deliver

9.4. The Executive leadership team then prioritised activities for the first 3 years of the LTP, taking account of business needs, risks and capacity to deliver

10. The digital system implementations that have been prioritised are illustrated and are attached.

11. This work programme is very ambitious, it will consume most of the resources of the ICT section, as well as many other staff from impacted business units. The implications of this are that there won’t be residual capacity to respond to ad-hoc requests for new systems, or system enhancements. To mitigate this, we:

11.1. have reserved 12-15% of project resources for medium sized / innovation projects

11.2. will review internal processes and resources associated with the continuous improvement of existing digital systems.

Strategic Fit

12. The IT work programme is a subset of the Corporate Plan, which underpins many of the desired outcomes and actions in HBRC Strategic Plan 2020-2025.

13. Two of the pillars within HBRC Strategic Plan 2020-2025 are specifically targeted for support and enablement through digital system implementations:

13.1. Sustainable and climate-resilient services and infrastructure.

13.1.1. Enterprise Asset Management System

13.2. Healthy, functioning and climate-resilient biodiversity

13.2.1. Improved systems for Biodiversity and Pest Management teams

Next Steps

14. The IT work programme will be monitored and reported on as part of the broader Corporate Plan.

15. Individual project progress will be reported via the Project Management Office.

16. The IT work programme will have impacts on the wider Council organisation

16.1. There will be an opportunity to review and re-design work processes in areas targeted for digital system implementations

16.2. Process redesign and system implementation will have an impact on resourcing within customer business units. This impact is intended to be mitigated by funding backfill resources from project budgets.

17. IT project priorities will be reviewed annually, alongside the annual plan process. At this time, we will review the assumptions we’ve made about project sizing, capacity to deliver

Decision Making Process

18. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision making provisions do not apply.

Recommendation

That the Corporate & Strategic Committee receives and notes the “LTP IT Work Programme Delivery” staff report.

Authored by: Approved by:

Andrew Siddles

Chief Information Officer

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩

ICT Work Programme Timeline

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: HBRIC Quarterly Update

Reason for Report

1. This item provides Council with a quarterly update on the affairs of Hawke’s Bay Regional Investment Company (HBRIC) for the March 2021 quarter.

Discussion

2. Attached to this report are the HBRIC financial statements for the 9 months to 31 March 2021.

3. Key Items to note:

3.1. Reported $348k gain on sale of Port shares is due to a credit on advisor fees confirmed at final washup of IPO costs

3.2. $5.5mil of Port Dividend revenue recognised in December 2020

3.3. $4mil dividend paid by HBRIC to HBRC in December 2020

3.4. $249K of interest received from HBRC relating to interest on a loan from HBRIC to HBRC related to managed funds transferred to Council

3.5. $23mil YTD loss on revaluation of Napier Port shares

3.6. $4.3mil YTD gains on managed fund investments (realised and unrealised) of which $1.2mil was divested in December 2020

3.7. YTD surplus - $5.9mil

3.8. Net Assets - $442mil.

Managed Funds

4. Full reporting on the HBRIC managed funds is provided via the Council treasury process.

5. The funds remain under management in compliance with Council’s SIPO.

6. In December 2020, mirroring Council’s approach, HBRIC liquidated circa $1.2mil of funds after protecting the real capital value of the funds.

7. The value of managed funds with HBRIC as at 31 March 2021 amounted to $48.7mil, a movement of approximately + $3.1mil (post divestment) since 30 June 2020.

HBRIC Capital Structure

8. The Board of HBRIC has commenced the development of a clearer capital structure and investment mandate to support the growth of the company, as agreed with Council. When this is finalised, it will be shared with Council.

9. To support the required planning, the Board of HBRIC and Council Chair undertook a field trip to meet with similar entities and also entities involved in investment activities of interest. Visits included:

9.1. Tainui Holdings - review of corporate investment model and inland port project

9.2. Waikato Innovation Park – review of the hub’s business model, which was used as a template for FoodEast

9.3. Quayside Holdings – review of corporate investment model, corporate structure and investment categories

9.4. Whakatohea Mussels – review of mussel industry and business model.

FoodEast

10. At Council’s request, HBRIC has been working with Hastings District Council and Progressive Meats to develop a viable business case for the development of a Food Innovation Hub in Hawke’s Bay (to be named FoodEast).

11. Council and HBRIC agreed to commit up to $200k to support the feasibility stage, with the option to invest further. Initial funding has been limited to $100k, with further investment subject to further due diligence and a business case.

12. The business case was approved by the HBRIC Board in February and endorsed by Council at the February Council meeting. Council noted HBRIC will now finalise the investment quantum and terms under its delegated authorities.

13. At the February meeting, Council also agreed to consult on the creation of two new Council Controlled Organisations (CCO’s) to enable FoodEast to be created. This has now been completed and approved by HBRC. HDC is completing its parallel CCO formation consultation process in the coming days.

14. Due diligence and final preparation for financial close is now well advanced with financial close targeted for the end of May/early June.

1. 15. Due diligence and final preparation for financial close is now well advanced with financial close targeted for the end of May/early June.

2. The investment structure is now being finalised, including:

2.1. HBRIC’s majority share

2.2. Director appointments and governance structure during the start-up and construction phase

2.3. Phasing of the capital investment.

16. The current schedule, subject to all of HBRIC’s conditions being met on time (e.g. confirmation of Crown funding, finalisation of all documentation) will see the HBRIC Board make a final investment decision by 21 May 2021. At this time a decision is also required on the appointment of a director to FoodEast. This appointment requires Council approval and will need to be brought to the 26 May 2021 Council meeting in a public excluded session.

17. Aquaculture – There has been no further work on this item.

Film studios and TV show investment

18. There has been no further work on this item, with any next steps resting with the interested third parties providing sufficient information and an investment case.

Whakatu Inland Port

19. HBRIC is working with the Crown and Napier Port to develop a viable model. A further update will be provided once this is developed further.

Napier Port

20. In April, Napier Port announced an earnings upgrade on the back of solid trade performance, increasing its earnings guidance from $34m - $38m to $39m - $42m.

21. The upgrade has largely offset the loss of cruise trade and has been supported by stable container trade and strong growth in bulk trades, largely logs.

22. Construction of 6 Wharf remains on budget and on track for completion late 2022.

23. A copy of Napier Port’s half year trade results to March release is available at: https://www.napierport.co.nz/investor-centre/.

24. During the quarter Napier Port also officially launched its industry leading marine cultural health programme. Further information can be found at: https://marineculturalhealth.co.nz.

Decision Making Process

25. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the “HBRIC Ltd Quarterly Update”.

Authored by:

Kishan Premadasa

Management Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩	HBRIC Statement of Financial Performance March 2021
2 ⇩	HBRIC Statement of Financial Position March 2021

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 19 May 2021

Subject: Confirmation of Public Excluded Minutes of the Corporate and Strategic Committeemeeting held on 3 March 2021

That the Corporate and Strategic Committee excludes the public from this section of the meeting being Confirmation of Public Excluded Minutes Agenda Item 15 with the general subject of the item to be considered while the public is excluded; the reasons for passing the resolution and the specific grounds under Section 48 (1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution being:

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
HBRIC Ltd Quarterly Update (to 31 December 2020)	s7(2)(b)(ii) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of that information is necessary to protect information which otherwise would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.
HBRIC Ltd Draft 2021-22 Statement of Intent	s7(2)(h) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of the information is necessary to enable the local authority holding the information to carry out, without prejudice or disadvantage, commercial activities	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.
Wellington Leasehold Property Offer	s7(2)(i) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of the information is necessary to enable the local authority holding the information to carry out, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

Authored by:

Leeanne Hooper

Team Leader Governance

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Topic	Raised by